Education expense tax deduction in Sri Lanka: when training qualifies

Last verified against the primary sources on 15 October 2026.

Take a hypothetical sole proprietor who runs an IT services business and spends Rs 240,000 on his own training in a year. Rs 180,000 is a product certification course used directly in the business, which does not lead to a degree or diploma. Rs 60,000 is a professional diploma. The certification can be claimed; the diploma is domestic expenditure, even if the subject is relevant [1]. The line between the two is not only how relevant the course is. It is also whether the course leads to a degree or diploma.

That distinction catches many owners off guard, and it sits in Section 197(1)(d) of the Inland Revenue Act.

Section 197(1) applies "Where an individual incurs expenditure in respect of himself" [1]. It is a rule for sole proprietors, partners and professionals paying for their own education. It does not make a company's spending on training for its employees domestic expenditure; that is tested under the general deduction rules instead.

This guide explains where the line is drawn, what costs deserve closer review, and what evidence should sit behind the deduction file.

The two-part test inside Section 197(1)(d) that most expense approvals miss

Section 197(1)(d) treats an individual's expenditure on his own education as domestic expenditure, "other than education that is directly relevant to a business conducted by the individual and that does not lead to a degree or diploma" [1]. Domestic expenditure is not deductible. So the cost escapes that treatment only if both conditions are met: the education is directly relevant to a business the individual already conducts, and it does not lead to a degree or diploma.

That wording matters because it is narrower than the way many owners approve their own training claims. Relevance to work on its own is not the whole answer. The cost still needs to fit the current business activity and avoid leading to a degree or diploma.

What the rule is trying to separate

The practical distinction is between maintaining current earning capacity and paying for a personal credential. If the cost is tied directly to the business or profession already being carried on, the expense is easier to defend. If the cost leads to a degree, a diploma, or an unrelated qualification, it falls into domestic expenditure.

That is why the rule often surprises professionals. A short technical course, regulatory update session, or mandatory continuing-professional-development programme can look like a normal business cost. A degree programme, even if it may help future earnings, is treated very differently.

Use the corporate income tax guide for the wider deduction framework. This article focuses only on the training-versus-qualification issue that often gets missed during expense review.

When training is more likely to be deductible

Training is more defensible when it supports the income-producing activity the individual already carries on.

• technical updates needed to continue a current profession or trade
• mandatory CPD or licence-renewal programmes
• product, system, or software training directly linked to the business's current operations
• short courses that improve existing delivery capacity without leading to a degree or diploma

The stronger the link between the course and the current business activity, the easier it is to explain why the cost belongs in the tax file. This is especially important for sole proprietors and professionals, where business and personal spending can become blurred.

What usually fails the deduction test

The higher-risk items are the ones that look more like personal advancement than current business maintenance.

• courses that lead to a degree or diploma
• programmes unrelated to the business or profession currently being carried on
• general self-improvement or lifestyle courses with no direct business connection
• claims made without a written explanation of business relevance

A legal update seminar for a practising lawyer passes both conditions: directly relevant to current practice, and no degree or diploma. A postgraduate diploma for the same lawyer fails. Even if the subject is directly relevant, the diploma outcome makes the cost domestic expenditure [1]. The issue is not whether the learning is useful. The issue is whether the cost clears both parts of the Section 197(1)(d) test.

Records to keep if you want the cost allowed

If the deduction is going to be claimed, keep more than the invoice.

• course outline or syllabus showing the subject matter
• invoice, payment proof, and approval
• short note explaining how the training relates to the current business activity
• details of who attended and what role they perform
• ledger coding that keeps training costs separate from personal or staff-welfare spending

If you are building the year-end computation manually, the personal income tax calculator can help you keep the add-backs and deductions in view before the return is filed.

How businesses should review reimbursements and owner claims

Training costs should be reviewed before year-end, not when the tax computation is already being signed off. That means finance should test each material item against business relevance, qualification outcome, and supporting documents while the facts are still easy to confirm.

If an owner-manager, partner or sole proprietor is claiming the cost of his own course, apply the Section 197(1)(d) test strictly, because private and business benefit overlap. If a company pays for training for its employees, Section 197(1) is not the test [1]; the approval file should still say why the course was needed for the current role, so the cost can be shown to be incurred in producing the company's income.

If the wider business structure is still being formalised, the sole proprietorship registration guide and the TIN certificate guide help establish the baseline records that support later tax deductions.

Frequently asked questions

Can a degree or diploma be claimed as a deduction?

Not by an individual paying for his own course. Section 197(1)(d) treats education that leads to a degree or diploma as domestic expenditure, even where it is relevant to the business [1].

Does the rule apply to a company paying for staff training?

No. Section 197(1) applies where an individual incurs expenditure in respect of himself [1]. A company's staff training costs are tested under the general deduction rules.

Does work relevance by itself make a course deductible?

No. For an individual's own education, the course must be directly relevant to a business he already conducts and must not lead to a degree or diploma [1].

What about CPD or technical refresher courses?

Those costs are generally easier to defend when they are directly relevant to the business or profession already being carried on and are properly documented.

Does the invoice alone prove the deduction?

No. You should be able to show what the course covered, why it was relevant, who attended, and how the cost connects to the current income-producing activity.

Talk to us. If you are unsure whether a training cost belongs in your tax computation, our tax team can review it with you before the return is filed; book a consultation at our contact page.

WinCore Pvt Ltd

This guide is general information on the law as at 15 October 2026 and is not advice on your specific situation.

References

1. Inland Revenue Department. Inland Revenue Act, No. 24 of 2017, consolidated text with amendments to 2025, s.197(1)(d), definition of domestic expenditure. https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IRA_Cons_Act_-_2025_Changes.pdf . Primary. Accessed 15 October 2026.